Glossary of Basic Credit and Credit Card Terms

Credit Limit: The amount of a credit limit will depend on the size of your deposit, your credit payment history and/or your issuer's policy. It is the amount of money which you may borrow on your credit card, the total amount of purchases you can make.

Unsecured Credit Card: Credit card in which the credit issuer simply has your "promise to repay" the amount you owe. You do not have to put money in an account before using this type of credit card. Typically the card of choice of people with a good credit ranking.

Secured Credit Card: Credit card which requires putting money in an account as protection against the line of credit. By putting money in an account, there is less risk to the issuer. As a result, individuals who have a poorer credit rating and cannot qualify for unsecured credit may qualify for a credit card with this sort of a deposit.

Annual Percentage Rate: The Annual Percentage Rate (APR) measures what it costs you yearly to use your credit card and revolve your balance, based on when purchases are made. APRs vary widely from card to card; therefore, after your account is opened, you should refer to your monthly periodic statement for exact details regarding your APR.

Interest Computation Method: Understanding how the interest on your credit card is computed is important as credit card interest is calculated differently than for the typical car loan or home mortgage. The interest on an unpaid balance can be included in the balance on the next month's bill, becoming part of the interest calculation for that payment period.

Fees and Charges: Most issuers charge an Annual Fee; some also might charge a fee for a cash advance or if you fail to make a payment on time or go over your credit limit. If you pay bills in full each month, the size of the Annual Fee or other fees will be more important. If you carry a balance, the APR and the method used to figure your balance are key. Get all terms and fees in writing, including whether a deposit is required.

Grace Period: If you paid your previous month's balance in full by the due date, a grace period allows you to avoid any Finance Charge by paying your balance in full before the due date. If there is no free period, you will pay a Finance Charge from the date of the transaction, even if you pay your entire balance when you receive your bill.

Average Daily Balance: If you carry a balance after the end of a grace period, new purchases will be included in the total balance - these purchases will immediately begin accruing interest.

Finance Charge: Any charge associated with having credit extended to you is a finance charge. This includes interest, service, transaction fees and similar items.

Minimum Payment: The minimum dollar amount that you must pay per month on your credit card bill.

Revolving Credit: Revolving credit allows you to make purchases up to the predetermined credit limit that is assigned to you. "Revolving" means that as you use your card, you are continually doing two things: borrowing against your credit limit and repaying towards it. Suppose your credit limit is $2,000, and you have no outstanding balance. If you buy $200 worth of electronics, you then have $1800 in available credit. If you repay $150, you then have $1950 in available credit.

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Glossary of Basic Credit and Credit Card Terms